BANKIZATION OF RUSSIA AND ECONOMIC GROWTH Garegin Tosunyan Liechtenstein July 2, 2007

2 Commonwealth of Independent States on the World Map 1.Russia – 17075,4 2.Kazakhstan – 2724,9 3.Ukraine – 603,5 4.Turkmenistan – 491,2 5.Uzbekistan – 448,9 6.Belarus – 207,6 7.Kyrgyzstan – 199,9 8.Tajikistan – 143,1 9.Azerbaijan – 86,6 10.Georgia – 69,7 11.Moldova – 33,8 12.Armenia – 29,8 1.Russia – 142,8 2.Ukraine – 46,7 3.Uzbekistan – 26,3 4.Kazakhstan – 15,2 5.Belarus – 9,8 6.Azerbaijan – 8,4 7.Tajikistan – 6,9 8.Turkmenistan – 6,7 9.Kyrgyzstan – 5,1 10.Georgia – 4,4 11.Moldova – 3,9 12.Armenia – 3,2 Population of CIS countries, mln. inh. CIS territory – 22,1 mln. sq. km. Population – 279,7 mln. inhabitants The territory of Liechtenstein – 0,00016 mln. sq.km. (160 sq.km.) Population – mln. inhabitants (34 thous.) Swiss territory – 0,041 mln. sq.km. (41 thous. sq.km.) Population – 7.56 mln. inhabitants Territory of CIS countries, thous. sq. km.

3 Russian economy continues to develop Russian economy continues to develop Results of the I quarter of 2007 (in % to I quarter of 2006) Real wages + 18,4 % Real income of the population + 13 % Consumer prices + 3,4%* Investments in the fixed capital + 20,1 % 4,5 trln roubles Industrial production + 8,4 % export + 5,3 % USD 71 bln (the share of fuel and energy products makes 78%) Import + 36,8% USD 42,4 bln Source: Ministry of Economy * Compared to December GDP + 7,9 %

4 «Hot Buttons» of the Banking System of Russia FALLING BEHIND terms of credits : credits for enterprises > 3 years in Russia – 28% in EU – 52% supportability : number of banking offices per 100 thous. inhabitants Russia < Austria 4-fold < France 3-fold assetscapital banks’ assets Russia < U.K. 22-fold < France 15-fold < Germany 17-fold banks’ assets to GDP Russia < U.K. 10-fold < France 7-fold < Germany 6-fold banks’ capital Russia < EU 29-fold < USA 14-fold < Germany 8-fold banks’ capital to GDP Russia < U.K. 4-fold < France 3-fold < Germany 3-fold

5 CIS and Swiss Banks’ Assets

6 CIS and Swiss Banks’ Capital

7 Financing Economy Share of long-term credits (> 1 yr) to the economy in the total volume of credits: In Kazakhstan – 53% In Ukraine – 67% In Belarus – 70% In Russia – 46% In Austria – 70% (of which > 5 yrs – 57%) Credits to enterprises by maturity RUSSIA EU

8 Monetization of Economies Growing money supply does not hinder disinflation under sound monetary policy

9 Assets and Liabilities of the Central Bank of Russia Annual interest rate on foreign loans for Russian borrowers makes6 -10% makes 6 -10% EFFECTIVENESS OF INVESTMENTS

10 Sky-rocket of the Private Sector’s External Debt $309,7 bln. RF external debt as of – $309,7 bln.

11 Required Reserves Throughout the World NO RR in: Canada Great Britain New Zealand Sweden Australia …

12 Required Reserves Ratios in Russia To expand the financing of the Russian economy it is necessary to: low down RR ratioslow down RR ratios exclude time deposits from RR calculationexclude time deposits from RR calculation Required reserve ratio on credit institutions’ liabilities to non-resident banks in rubles and foreign currency Required reserve ratio on liabilities to individuals in rubles Required reserve ratio on credit institutions’ other liabilities in rubles and foreign currency , , , ,54,04,5

13 Refinancing Rate as an Instrument of the Monetary Policy

14 Bankization of Russia BANKIZATION means: Increasing capitalization Reduction of interest rates Protection of creditors’ rights Availability of services Resource base enlargement Regional infrastructure development Governance quality improvement COMPETITIVENESS means: “Saturation” with credit resources High capitalization Availability of Russian financial resources Low interest rates Geographical accessibility Significant middle class Low inflation

15 Targets for Competitiveness Growth As of Targets for according to the Program of Bankization credits for non-financial sector/GDP 21,6%50% credits interest rates 11-22%3-6% monetization level (M2/GDP) 35%50% refinancing by CBR 0,08% of the CBR assets 15-20% of the CBR assets assets/GDP 53%86% capital/GDP 6,4%13%

16 Ассоциация российских банков BANKIZATION OF RUSSIA = TO CREDIT, NOT TO DISTRIBUTE